In order to better understand the possible impact of the completion of QE2,
we are in the process of studying the 'flash crash' period and the period following
Ben Bernanke's August 2010 Jackson Hole speech. Our work to date may help
us better understand the risks of a continuing correction in today's markets.
As outlined on March
3, the longer-term outlook for stocks remains favorable, but the short-term
outlook is cloudy.

There were very few places to hide during the flash crash correction which
kicked off on April 23, 2010. The pain for investors did not end until the
S&P 500 had given back 13.20% before finding some footing on August 27,
2010. The table below shows a select list of ETFs that provided defensive cover
during the dark days of 2010.

In the minds of market participants, the assets listed above were the safe
havens of choice when the dial on the risk trade moved from "on" to "off".
On Valentine's Day 2011, defensive assets began to show improving relative
strength vs. the S&P 500. The flash crash winners highlighted in blue above
have continued to draw increasing interest from buyers over the past four weeks
(see relative strength charts below). The investments listed in the table
above serve as a de facto shopping list should the current pullback morph into
a full blown correction.

The relative strength lines of the VIX or the 'fear index' and utilities
have moved higher in recent weeks, indicating increasing concerns about
further downside in risk assets.

While relative strength is a term from technical analysis, the concept of
buyers becoming more interested in defensive assets falls under the common
sense category when it comes to risk management. Based on other
concerns, we already hold the highest percentage of cash since late November
2010 as a way to reduce risk until the threat of continued downside subsides
somewhat. In terms of current strategy, the increasing relative strength
of defensive assets tells us:

Market participants are becoming increasingly nervous.

Further downside is possible.

To continue to monitor defensive assets.

To be open to raising more cash, based on the incremental
approach, should conditions deteriorate further.

Increasing interest in bonds is not good news for stock and commodity
investors.

For those not familiar with technical analysis, the green lines in the relative
strength charts all have positive slopes, which highlight an increasing interest
in defensive assets relative to the stock market in general.

Gold's safe haven status appears to be intact.

It is not time to panic relative to the possible continuation of the current
correction, but we are happy we have taken some profits off the table in recent
weeks. The defensive assets shown above will continue to help us monitor the
risk tolerance of market participants, who ultimately determine the value of
our portfolios.

Corporate bonds and stocks in Malaysia held up well during the 2010 flash
crash correction. Buyers are again showing interest over the last few weeks.

Chris Ciovacco is the Chief Investment Officer for Ciovacco
Capital Management, LLC. More on the web at www.ciovaccocapital.com.

All material presented herein is believed to be reliable
but we cannot attest to its accuracy. Investment recommendations may change
and readers are urged to check with their investment counselors and tax advisors
before making any investment decisions. Opinions expressed in these reports
may change without prior notice. This memorandum is based on information available
to the public. No representation is made that it is accurate or complete. This
memorandum is not an offer to buy or sell or a solicitation of an offer to
buy or sell the securities mentioned. The investments discussed or recommended
in this report may be unsuitable for investors depending on their specific
investment objectives and financial position. Past performance is not necessarily
a guide to future performance. The price or value of the investments to which
this report relates, either directly or indirectly, may fall or rise against
the interest of investors. All prices and yields contained in this report are
subject to change without notice. This information is based on hypothetical
assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES,
EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM
ANY INFORMATION CONTAINED IN THIS ARTICLE.

Ciovacco Capital Management, LLC is an independent money
management firm based in Atlanta, Georgia. CCM helps individual investors and
businesses, large & small; achieve improved investment results via research
and globally diversified investment portfolios. Since we are a fee-based firm,
our only objective is to help you protect and grow your assets. Our long-term,
theme-oriented, buy-and-hold approach allows for portfolio rebalancing from
time to time to adjust to new opportunities or changing market conditions.